China's banking regulator issues guidelines on outbound investment

BEIJING (Reuters) - China’s banking regulator issued guidelines on Wednesday calling for the country’s financial institutions to strengthen their control and management of funding for outbound investment.

A 100 Yuan note is seen in this illustration picture in Beijing March 7, 2011. REUTERS/David Gray/File Photo

The guidelines are the latest new rules on overseas investment as Beijing moves to clamp down on cross-border capital outflows and halt questionable investments.

The China Banking Regulatory Commission (CBRC) instructed commercial banks to bolster their risk and compliance management for offshore investment projects, and improve their supervision of anti-money laundering and anti-terrorist financing activities.

The CBRC in the guidance also told the banks to improve credit risk management of cross-border business and strengthen due diligence and post-loan management.

China is seeking to rein in capital outflows after sluggish economic growth and a strong dollar helped push the yuan down 7 percent last year, its biggest annual loss against the dollar since 1994. China’s outbound investment jumped 44 percent last year to $170.1 billion, according to the Commerce Ministry.

The CBRC guidelines also call for Chinese banks to improve their oversight of offshore branches, to ensure compliance with local legal, tax and regulatory requirements.

That move could address shortcomings that contributed to a series of scandals that have ensnared the country’s biggest lenders in Europe and the United States.

In November, Agricultural Bank of China Ltd, agreed to pay $215 million for violating New York state’s anti-money laundering law including masking potentially suspicious transactions.

AgBank was the third big Chinese lender to be disciplined by U.S. regulators over the previous 18 months.

Separately, Bank of China Ltd and Industrial and Commercial Bank of China have been accused of violating anti-money laundering laws in Europe.

Earlier this month, China’s State-owned Assets Supervision and Administration Commission (SASAC) issued rules to better supervise offshore investments by state-owned enterprises (SOEs).

SASAC said it would establish a list of overseas projects that large SOEs should not invest in.

Overseas mergers and acquisitions by Chinese entities totaled $107.2 billion last year.

Reporting by Matthew Miller and Beijing Monitoring Desk; Editing by Christian Schmollinger and Susan Fenton